1
Are We Running Out of Everything?S. Charles
Maurice and Charles W. SmithsonCenter for
Education and Research in Free EnterpriseSeries
on Public Issues No. 1Texas AM University, 1985
2
Are we?

• A new shortage crisis seem to pop up everyday.
• Summer 1973 The Economics of Scarcity,
  Newsweek, July 9, 1973
• However, the world has weathered resource crises
  in the past.
• Prophecy of Doom!
• In 1914, U.S. Bureau of Mines reports only 5.7
  million barrels of oil remaining with drilling at
  200 million barrels a year.
• In 1934, with drilling at 1 billion barrels a
  year, the Interior Department predicted that
  production would stop in 13 years
• In 1949 U.S. Secretary of the Interior reported
  that the end is near with pumps pulling up 2
  billion barrels that year.

3
Most Recent Crisis in 1980s!

• From 1950 to 1973, the real price (1967) of a
  barrel of oil actually declined.
• 1950 3.38-US 2.37-World
• 1965 3.03-US 1.41-World
• 1975 4.76-US 6.65-World
• 1980 5.12-US 14.04-World
• American wasnt wasteful of oil in the 50s and
  60s. No, it was saving on more expensive
  resources.
• No Crisis at the time, so Americans made their
  homes cheaper.

4
What Caused the Crisis

• In 1959, President Eisenhower limited imported
  oil to 12.
• On Sept. 14, 1960, OPEC was formed (Iran, Iraq,
  Kuwait, Saudi Arabia, Venezuela)
• By 1970 imports in to U.S. were 20.
• However what really caused the gas lines was the
  Nixon Administration imposing price controls.
• Thus consumption continued to climb at the
  sixties rate without any incentive to actually
  find better extraction or sources.
• The OPEC rate raise was only supposed to be a 52
  increase over five years in 1971. Instead, it got
  a 300 increase in 10 weeks in winter of 1973 due
  to oil embargo during Arab-Israeli War.
• The solution was not controlled which was shown
  again in 1979 when Iran started the second
  crisis.
• It wouldnt fade away due to price controls
  legislation.

5
Solution!

• President Carter in 1979, amid protests, started
  to phase out the price controls by fall of 1981.
• By the end of 1980, imported oil dropped by 25.
• Deregulation was fulfilled in January 1981 when
  President Regan took office, and it was nine
  months ahead of schedule.
• During that period, consumption dropped 20, and
  at the same time, new sources increased by 50.
  After a brief jump in price of oil from 29 to
  36 a barrel, the price dropped in early to mid
  1980s. There was a surplus of oil.

6
Moral

• When unhampered markets eliminate the crisis.
• This is done by either new and expensive
  technology or alternatives.
• So, is this a recent thing?
• No!

7
The Timber Crisis

• During the beginning of the Progressive Age,
  America was fueled by wood!
• Timber Famine Near, Says Roosevelt, (and)
  National Forest Service. The President Repeats
  that One is Needed Jan. 6 1905
• Wood was essential for railroads that helped to
  create the infrastructure after the Civil War.
• But Eastern Forests were being depleted.
• From 1870 to 1900, railroads used 1/3 of annual
  timber production.
• Railroads switched from wood to coal during the
  Civil War.

8
Crisis End

• Railroads still used wood for everything else
  such as ties and cars until 1890.
• The Forest Service suggest replanting, but this
  didnt seem to be a super solution.
• No, it was innovation that was the solution.
• From 1900 to 1914, new wood products and
  protection made cheaper wood more viable. Crisis
  averted.

9
First Oil Crisis!

• Petroleum- rock oil So, what was the first
  source of lamp oil? Well, I got a whale of tale
  for you. It was the whale!
• By 1846, there were 729 American whaling ships
  afloat. Sperm whale oil price was 88 cents a
  barrel while other whales was 33 cents a barrel.
• However, it was becoming more difficult to find
  whales. So the tonnage of whalers became larger.
  However, this was not the solution.
• The solution came from George H. Bissell,
  journalist and teacher, and Edwin L. Drake,
  former railroad conductor.

10
Theres Oil in Pennsylvania!

• Near Titusville, Pennsylvania on August 27, 1859,
  black gold seeped to the surface.
• November 14, 1861, the Oil Creek Association met
  to improve, (i.e., raise) the price of Oil.
• Whale Oil became a thing of the past.

11
Tin Crisis in Greece

• Why did the Bronze Age (19th century B.C.) become
  the Iron Age?
• Iron was a high commodity in the Bronze Age. It
  was so expensive that small amounts were used to
  decorate gold rings.
• Exchange rate was 1 iron 40 silver
• Bronze however was even cheaper due to trade with
  Cyprus for cooper and Persia for tin.
• Then in 1000 B.C., tin became almost nonexistent
  in the Aegean. Bronze suddenly became more
  expensive.

12
What to do? Become Iron Men

• The problem was caused by Dorians and Philistines
  moving into the eastern Mediterranean.
• So with a lack of tin, iron became a working
  metal. Though iron had become a working metal
  bronze weapons were still used at the Battle of
  Marathon in the Fifth Century B.C.
• However, Iron eventually just became cheaper
  because of more experience of working with it.
• By 7th century B.C. iron to silver exhange ratio
  was 20001

13
Recycling in the Stone Age

• Two Mayan sites (in modern northern Belize)
  revealed drastically different attitudes to
  flint.
• At Colha, flint was plentiful, so arrowheads were
  larger and once broken were thrown in garbage
  piles.
• At Pulltrouser Swamp, flint was rarer, so
  arrowheads were reused were smaller.
• All without a message of Be Mayan, Conserve
  Flint!

14
Summary of Lessons from History

• In Timber Crisis, consumers substituted away from
  timber and innovated.
• In Whale Crisis, producers found another source.
• In Ancient Greece, they switched to an
  alternative product.
• In ancient Mesoamerica, they recycled flint.

15
So, what killed Rome?

• Emperor Gaius Octavius Caesar (or Augustus) had a
  free market that fueled the Golden Age of Rome.
• His successors revoked his policies and replaced
  them with interference with no economic mobility.
  
• Some citizens opted out of the system and became
  serfs. However, this destroyed the market because
  there were fewer customers.
• Diocletian, in 301, edict for wage and price
  controls (ceilings). Destroyed incentives.
• By 476 A.D., Rome had already died before the
  last Emperor.

16
So, whats the point?

• Periods of Scarcity are a common occurrence in
  the history of man.
• Currently, for the last twenty years, a water
  crisis seems to be brewing.
• . . .by the year 2000, only three of the 18
  federally designated water regions on the U.S.
  mainland will be albe to live comfortably with
  their water supplies.
• If the market isnt regulated, it will self
  correct.